What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-06-08 compared with 2020-12-10 · 208 added, 247 removed, 334 unchanged (58% of the section changed)

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Actual results may differ materially from these expectations due to changes in global, regional or local economic, business, competitive, market, regulatory and other factors, many of which are beyond our control.

We believe that these factors include but are not limited to those described under "Risk Factors" in the Company's final prospectus dated October 1, 2020 (the "Prospectus"), as filed with the Securities and Exchange Commission (the "SEC") on October 2, 2020 pursuant to Rule 424(b)(4) under the Securities Act, and in this Quarterly Report, as such risk factors may be updated from time to time in our periodic filings with the SEC, and are accessible on the SEC's website at www.sec.gov, and also include the following:

We believe that these factors include but are not limited to those described under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 2021 (the "Annual Report"), as filed with the Securities and Exchange Commission (the "SEC") on April 7, 2021, and in this Quarterly Report, as such risk factors may be updated from time to time in our periodic filings with the SEC, and are accessible on the SEC's website at www.sec.gov, and also include the following:

• overall decline in the health of the economy and consumer discretionary spending;

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• our substantial indebtedness;

• our sponsor (affiliates of Kohlberg Kravis Roberts & Co.

("KKR")) controls us and their interests may conflict with ours or yours in the future.

• investment funds and other entities affiliated with Kohlberg Kravis Roberts & Co.

(collectively "KKR")) have the ability to exert substantial influence over us and their interests may conflict with ours or yours in the future.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report.

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and (2) on and after October 1, 2020, Academy Sports and Outdoors, Inc., a Delaware corporation and the current parent holding company of our operations, and its consolidated subsidiaries.

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and related notes included elsewhere in this Quarterly Report for the thirteen and thirty-nine weeks ended October 31, 2020 and our audited financial statements for the fiscal year ended February 1, 2020 and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Prospectus.

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and related notes included elsewhere in this Quarterly Report for the thirteen weeks ended May 1, 2021 and our audited financial statements for the fiscal year ended January 30, 2021 and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Annual Report.

This discussion contains forward-looking statements that involve risks and uncertainties.

See the section of this Quarterly Report entitled "Cautionary Statement Regarding Forward-Looking Statements." When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business.

Known material factors that could affect our financial performance and actual results, and could cause actual results to differ materially from those expressed or implied in any forward-looking statements included in this discussion or otherwise made by our management, are described in the "Risk Factors" sections of the Prospectus and this Quarterly Report.

Any reference in this Quarterly Report to "year" or any year in particular refers to our fiscal year, which represents the fifty-two or fifty-three week period ending on the Saturday closest to January 31.

Any reference in this Quarterly Report to the "current quarter", "2020 third quarter" or similar reference refers to the thirteen week period ended October 31, 2020, and any reference in this Quarterly Report to the "prior year quarter", "2019 third quarter" or similar reference refers to the thirteen week period ended November 2, 2019.

Any reference in this Quarterly Report to "current year-to-date", "year-to-date 2020" or similar reference represents the thirty-nine week period ended October 31, 2020, and any reference in this Quarterly Report to "prior year-to-date", "year-to-date 2019" or similar reference represents the thirty-nine week period ended November 2, 2019.

Academy Sports and Outdoors, Inc.

conducts its operations through its subsidiaries, including its indirect subsidiary, Academy, Ltd., an operating company which is doing business as "Academy Sports + Outdoors." Any reference in this Quarterly Report to "year" or any year in particular refers to our fiscal year, which represents the fifty-two or fifty-three week period ending on the Saturday closest to January 31.

Any reference in this Quarterly Report to the "current quarter", "2021 first quarter" or similar reference refers to the thirteen week period ended May 1, 2021, and any reference in this Quarterly Report to the "prior year quarter", "2020 first quarter" or similar reference refers to the thirteen week period ended May 2, 2020.

Unless otherwise specified, all comparisons regarding the current quarter 2021 are made to the corresponding quarter of 2020.

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Our value-based assortment also includes exclusive products from our portfolio of 19 owned brands.

As of October 31, 2020, we operated 259 stores that range in size from approximately 40,000 to 130,000 gross square feet, with an average size of approximately 70,000 gross square feet, throughout 16 contiguous states located primarily in the southern United States.

As of May 1, 2021, we operated 259 stores that range in size from approximately 40,000 to 130,000 gross square feet, with an average size of approximately 70,000 gross square feet, throughout 16 contiguous states located primarily in the southern United States.

Our stores are supported by over 20,000 team members, three distribution centers, and our rapidly growing e-commerce platform, www.academy.com.

We are deepening our customer relationships, further integrating our e-commerce platform with our stores and driving operating efficiencies by developing our omnichannel capabilities, such as our buy-online-pickup-in-store ("BOPIS") program, which we launched in 2019.

We are deepening our customer relationships, further integrating our e-commerce platform with our stores and driving operating efficiencies by developing our omnichannel capabilities, such as our curbside pickup and ship-to-store programs, which we launched in 2020.

The following table summarizes store activity for the periods indicated:

Thirty-Nine Weeks Ended

October 31, 2020 November 2, 2019

Thirteen Weeks Ended

May 1, 2021 May 2, 2020

Beginning stores 259 259

Q1 new stores — —

Q2 new stores — 2

Q3 new stores — 5

Ending stores 259 259

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We have deployed several new tools over recent years to improve inventory handling and vendor management, including third-party programs to analyze our inventory stock and execute a disciplined markdown strategy throughout the year at every location.

This implementation, along with other factors, has allowed us to improve our inventory management in stores, increasing our average inventory turns from 1.96x in the year-to-date 2019 to 2.79x in the year-to-date 2020.

This implementation, along with other factors, has allowed us to improve our inventory management in stores, increasing our average inventory turns from 2.96x to 4.08x in the twelve months ended May 2, 2020 and May 1, 2021, respectively.

We have coupled these tools with the data we have been able to collect from our Academy Credit Card program and targeted customer surveys, so that we can better estimate future inventory requirements.

It is imperative that we continue to find innovative ways to strengthen our inventory management if we are to remain competitive and expand our margins on a go-forward basis.

During the year-to-date 2020, we experienced significant inventory reductions from high sell-through during the period.

We expect to use cash to replenish such inventory throughout the rest of the current fiscal year, which we expect will impact our net cash provided by operating activities for the fourth quarter of 2020.

During 2020 and through the 2021 first quarter, we experienced significant inventory reductions from high sell-through during the period.

We expect to use cash to replenish such inventory throughout the rest of the current fiscal year, which we expect will impact our net cash provided by operating activities for the rest of 2021.

Value Strategy.

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A shift in our sales mix in which we sell more units of our owned brand products and fewer units of the national brand products would generally have a positive impact on our gross margin but an adverse impact on our total net sales.

E-commerce / BOPIS.

We expect that the expansion and enhancement of our omnichannel capabilities will be a key driver of growth in our net sales and gross margin.

We continue to invest in initiatives that will increase traffic to our e-commerce website and drive increased online sales conversion.

Our improved website also supports our stores with digital marketing and our BOPIS program.

In the thirty-nine weeks ended October 31, 2020 and November 2, 2019, BOPIS accounted for approximately 50% and 15%, respectively, of our e-commerce sales and approximately 5% and 1%, respectively, of total merchandise sales for such periods.

Our improved website also supports our stores with digital marketing and our buy-online-pickup-in-store ("BOPIS") and ship-to-store programs.

Our website also allows us to reach customers outside of our current store footprint and introduces new customers to the Academy brand.

In the thirteen weeks ended May 1, 2021, BOPIS accounted for approximately half of our e-commerce sales.

Our website is also a platform for marketing and product education, allowing us to connect further with our customers.

We believe it is important that we continue to grow our omnichannel capabilities, especially in light of changing consumer preferences as a result of the COVID-19 pandemic, which, together with recent enhancements made to our website and omnichannel capabilities, contributed to the substantial increase in e-commerce sales during the year-to-date 2020.

It is, however, difficult to ascertain with precision what portion of our increased e-commerce sales during the year-to-date 2020 was attributable to the COVID-19 pandemic as compared to such recent enhancements.

We expect to continue to invest in expanding and enhancing our omnichannel capabilities, including BOPIS, will continue to require significant investments by us.

Competition .

During the 2021 first quarter, stores facilitated approximately 95% of our total sales, including ship-from-store, BOPIS and in-store retail sales.

It is, however, difficult to ascertain with precision what portion of our e-commerce sales was attributable to the COVID-19 pandemic as compared to such recent enhancements.

During the 2021 first quarter, e-commerce penetration was 7.4% compared to 13.1% in the 2020 first quarter and 2.8% in the thirteen weeks ended May 4, 2019.

Our e-commerce sales declined 21.0% in the 2021 first quarter primarily driven by a demand shift from e-commerce to in-store as more and more customers are becoming comfortable shopping in our stores and the easing of COVID-19 restrictions;

however, our e-commerce sales increased 300% from the thirteen weeks ended May 4, 2019.

We expect to continue to invest in expanding and enhancing our omnichannel capabilities, including BOPIS, ship-from-store and ship-to-store, which will continue to require significant investments by us.

sporting goods and outdoor recreation retail industries are highly competitive and fragmented.

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In recent years, the Trump administration imposed multiple rounds of tariffs on exports from China, where we and many of our vendors source commodities.

As a result, we have experienced rising inventory costs on owned brand products we directly source from China, as well as national brand products from China that we source through our vendors.

As a result, we have experienced rising inventory costs on owned brand products we directly source from China, as well as national brand

products from China that we source through our vendors.

These higher inventory costs have resulted in higher prices and/or lower margins, thus resulting in a negative impact to net sales and/or gross margin.

On January 15, 2020, President Trump signed Phase I of a new trade agreement with China, signaling potential resolution between the two countries to the ongoing trade war in 2020.

However, no significant modifications have been enacted to date, relative to the escalated tariffs which impact our business.

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Our results of operations have been and will continue to be materially affected by the timing and number of new store openings.

We are continually assessing the number of locations available that could accommodate our preferred size of stores in markets we would consider and we expect to open eight to 10 new stores per year, starting in 2022, similar to our growth rates from 2018 through 2019.

We are continually assessing the number of locations available that could accommodate our preferred size of stores in markets we would consider and we expect, subject to the impact of the COVID-19 pandemic, to open eight to 10 new stores per year, starting in 2022, similar to our growth rates from 2018 through 2019.

The performance of new stores may vary depending on various factors such as the store opening date, the time of year of a particular opening, the amount of store opening costs, the amount of store occupancy costs and the location of the new store, including whether it is located in a new or existing market.

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The outbreak of COVID-19, which has been declared a global pandemic by the World Health Organization, continues to affect our business, as well as our customers, team members and suppliers, and has resulted in federal, state and local governmental authority safety recommendations and requirements aimed at mitigating the spread of the virus, such as stay-at-home orders, prohibitions of large group gatherings, travel restrictions and closures of certain businesses.

The scope and nature of these impacts continue to evolve on a daily basis, including with a potential resurgence in COVID-19 cases in the 2020 fourth quarter and beyond.

The scope and nature of these impacts continue to evolve on a daily basis, including any potential resurgence in COVID-19 cases.

In response to these restrictions, and in order to serve our customers while also providing for the safety of our customers, team members and service providers, we have taken many actions, including cleaning each store professionally on a regular basis, equipping each store with hand sanitizer stations and signage illustrating how to socially distance within the store, wearing face coverings, limiting the number of customers admitted at one time, and having protective shields installed at cash registers and other countertops.

We have incurred increased costs related to the implementation of these measures.

We also incurred temporary wage premiums and additional sick time for our active store and distribution center team members.

We have incurred increased costs related to the implementation of these measures, and temporary wage premiums and additional sick time for our active store and distribution center team members.

To mitigate the cost of these measures, during the thirteen weeks ended May 2, 2020, we temporarily furloughed a significant number of corporate, store and distribution center team members and enforced temporary pay cuts for executives and remaining active team members as well as other strategic actions to significantly reduce operating expenses during the period.

We also drew down $500 million on our ABL Facility (as defined below) in March 2020 as a precautionary measure to ensure financial flexibility and maximize liquidity.

We shortened the operating hours of our stores and fully closed six stores at some point during the thirteen weeks ended May 2, 2020, only one of which was closed for more than a week.

We have also reduced, deferred or cancelled planned capital expenditures, primarily related to store remodels, have worked with our business partners to modify vendor and landlord payments and terms, and reduced near term marketing.

Our temporary furlough period ended by June 8, 2020 for all of our store, distribution center and corporate team members, and on June 25, 2020, we completed repaying the $500 million draw on the 2018 ABL Facility.

All three of our distribution centers remained open during the year-to-date 2020, all of our 259 stores have been fully operational since May 20, 2020, and our corporate office has been fully open since June 8, 2020.

All three of our distribution centers remained open during 2020 and through the 2021 first quarter, all of our 259 stores have been fully operational since May 20, 2020, and our corporate office has been fully open since June 8, 2020.

We continue to monitor the rapidly evolving situation and expect to continue to adapt our operations to address federal, state, and local requirements as well as to implement standards or processes that we determine to be in the best interest of our team members, customers, and communities.

The impact of the pandemic and actions taken in response to it had varying effects on our results of operations, as further discussed below, and our business has been especially unpredictable during the year-to-date 2020.

The impact of the pandemic and actions taken in response to it had varying effects on our results of operations, as further discussed below, and our business has been especially unpredictable.

However, as an essential retailer, we have been able to serve our customers as their needs evolved during the pandemic.

In early March 2020, we saw the acceleration of sales in specific categories, such as outdoor cooking, camping, shooting sports and hunting.

Early in the pandemic, we saw the acceleration of sales in specific categories, such as outdoor cooking, camping, shooting sports and hunting.

Later in the 2020 first quarter, customers realized they needed to find ways to entertain their families and stay fit while schools and gyms closed, so they turned to us for isolated recreation, outdoor and leisure activities that we support, and as a result, we saw increased sales of weights, yoga mats, treadmills, indoor bicycles, fishing, hunting and camping gear, backyard and driveway games, trampolines, patio seating and grills.

We anticipate that the increased popularity of isolated recreation, outdoor and leisure activity products will continue for the duration of the pandemic and will result in a long-term increase to our customer base.

At the same time, during the first quarter 2020 we experienced decreased sales of certain of our offerings, primarily for apparel and footwear, and had to from time to time cancel certain of our purchase orders for these products.

We believe that our consumers feel comfortable visiting our stores due to the fact that we have big-box stores and curbside pick-up availability for online orders, making it easier to socially distance, and that we are not in, or tethered to, malls, as customers seek to avoid crowded spaces.

We also saw a significant increase in customers purchasing our products through omnichannel platforms, specifically as customers increasingly take advantage of our curbside pickup service, which we launched during the first quarter 2020.

At the same time, during the 2020 first quarter we experienced decreased sales of certain of our offerings, primarily for apparel and footwear, and had to occasionally cancel certain of our purchase orders for these products.

Despite the initial challenges in 2020 with sales declines in our footwear and apparel merchandise divisions, these categories ultimately experienced positive comparable sales growth for 2020.

The outdoors and sports and recreation divisions had consistent positive store sales growth throughout 2020 and ultimately experienced significant positive comparable sales growth in 2020.

During the 2021 first quarter, we experienced double digit comparable sales growth in all of our merchandise divisions.

Additionally, our sales mix has returned to more balanced levels relative to the prior year quarter.

In-store traffic has increased recently and relative to the prior year quarter.

We believe the increase is attributable to the easing of COVID-19 restrictions and increased availability of vaccinations throughout our footprint, which has contributed to increased customer comfort with shopping in our stores.

Additionally, we have seen recent demand increases from various factors, such as the U.S.

government stimulus payments, enhanced unemployment benefits and the gradual return of team sports and in-person education.

We believe that our consumers feel comfortable visiting our stores due to the fact that we have big-box stores and curbside pick-up for online orders, making it easier to socially distance, and that we are not in, or tethered to, malls, as customers seek to avoid crowded spaces.

We also saw a significant increase during 2020 of customers purchasing our products through omnichannel platforms, specifically as customers increasingly take advantage of our curbside pick-up service, which we launched during the 2020 first quarter and ship-to-store, which launched in the 2020 third quarter, which gives our customers more options on how to shop Academy.

While the easing of most COVID-19 restrictions in the 2021 first quarter has allowed for greater traffic in our stores, we believe it has also resulted in decreased e-commerce sales penetration when compared to the prior year.

The extent to which our operations and business trends will be impacted by, and any unforeseen costs will result from, the pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted.

These developments include, among other things, new information that may emerge concerning the severity of the outbreak and health implications, the development of vaccines to mitigate the risk of COVID-19, actions by government authorities to contain the outbreak or treat its impact, and changes in consumer behavior resulting from the outbreak and such government actions.

These developments include, among other things, new information that may emerge concerning the severity of the outbreak and health implications, the development and availability of vaccines to mitigate the risk of COVID-19, actions by government authorities to contain the outbreak or treat its impact, and changes in consumer behavior resulting from the outbreak and such government actions.

We continue to monitor the evolving situation as there remain many uncertainties regarding the pandemic and its resurgence, including the anticipated duration.

See the section of the Prospectus entitled "Risk Factors—Risks Related to Our Business—The impact of COVID-19 may adversely affect our business and financial results."

See the section of the Annual Report entitled "Risk Factors—Risks Related to Our Business—The impact of COVID-19 may adversely affect our business and financial results."

How We Assess the Performance of Our Business

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These metrics include operational measures and non-GAAP metrics supplemental to our GAAP results.

See "Non-GAAP Measures" below.

Comparable Sales.

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our ability to identify and respond effectively to customer preferences and local and regional trends;

our ability to provide an assortment of high quality/value oriented product offerings that generate new and repeat visits to our stores and our website;

our ability to provide an assortment of

high quality/value oriented product offerings that generate new and repeat visits to our stores and our website;

the customer experience and unique services we provide in our stores;

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and the number of stores that have been in operation for more than 13 months.

Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow.

Management uses Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, to establish and award discretionary annual incentive compensation, to report our compliance with certain covenants in our debt agreements, and to compare our performance against that of other peer companies using similar measures.

Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow.

Management uses Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures.

Management also uses Adjusted EBIT as a performance target to establish and award discretionary annual incentive compensation.

See "Non-GAAP Measures" below.

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Our tax rate prior to October 1, 2020 was almost entirely the result of state income taxes.

In connection with our initial public offering ("IPO"), as a result of the Reorganization Transactions (see Note 1 to the financial statements included in this Quarterly Report) completed on October 1, 2020, as described further in the Prospectus, Academy Sports and Outdoors, Inc.

("ASO, Inc.") is treated as a U.S.

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Results of Operations

Thirteen Weeks Ended October 31, 2020 Compared to Thirteen Weeks Ended November 2, 2019

Thirteen Weeks Ended May 1, 2021 Compared to Thirteen Weeks Ended May 2, 2020

The following table sets forth amounts and information derived from our unaudited statements of income for the periods indicated as follows (dollar amounts in thousands):

Thirteen Weeks Ended Change

October 31, 2020 November 2, 2019 Dollars Percent

May 1, 2021 May 2, 2020 Dollars Percent

Net sales $ 1,580,333 100.0 % $ 1,136,301 100.0 % $ 444,032 39.1 %

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Selling, general and administrative expenses 324,627 20.5 % 283,923 25.0 % 40,704 14.3 %

Operating income 81,556 6.0 % 53,176 4.6 % 28,380 53.4 %

Operating income 239,074 15.1 % 14,022 1.2 % 225,052 NM

Interest expense, net 14,549 0.9 % 24,522 2.2 % (9,973) (40.7) %

Other (income) expense, net 764 0.1 % (467) 0.0 % 1,231 NM

Income before income taxes 58,393 4.3 % 29,058 2.5 % 29,335 101.0 %

Income tax expense (benefit) (1,193) (0.1) % 506 0.0 % (1,699) NM

Net income $ 59,586 4.4 % $ 28,552 2.5 % $ 31,034 108.7 %

Other (income), net (397) 0.0 % (993) (0.1) % 596 (60.0) %

Income (loss) before income taxes 224,922 14.2 % (9,507) (0.8) % 234,429 NM

Income tax expense 47,126 3.0 % 513 0.0 % 46,613 NM

Net income (loss) $ 177,796 11.3 % $ (10,020) (0.9) % $ 187,816 NM

*Percentages in table may not sum properly due to rounding.

**NM - Not meaningful

Net sales increased $203.9 million, or 17.8%, in the 2020 third quarter over the prior year third quarter due to an increase in comparable sales of 16.5%, as well as additional net sales generated by new locations.

As of the end of the 2020 third quarter, we had the full benefit of five stores opened during the prior year quarter.

Collectively, these stores accounted for a net $13.6 million increase in net sales for the 2020 third quarter.

The 16.5% increase in comparable sales resulted from favorable results across most of our merchandise divisions.

The sports and recreation division sales increased as a result of various products such as fitness equipment and accessories, bikes, barbecues and grills, golf and outdoor games.

The increase in the outdoors division was primarily driven by strong sales in firearms, ammunition, fishing, hunting and shooting sports products.

The footwear division sales increased due to increases in the athletic and work footwear categories which were partially offset by declines in team sports footwear sales.

The apparel division decreased as a result of declines in sales of licensed apparel resulting from the Astros World Series appearance in the prior year which were partially offset by increases in athletic, outdoor and seasonal, and youth apparel.

We believe our merchandise division sales continue to be impacted by the COVID-19 pandemic which has caused increases in popularity in our outdoors and sports and recreation merchandise divisions as demand has increased in the merchandise categories that provide customers with isolated recreation, outdoor and leisure activities.

Additionally we believe that the substantial increase in e-commerce sales described below and ongoing improvements to our business, such as enhancements to our merchandise planning and allocation capabilities that began in February 2019 and the launch of the Academy Credit Card in May 2019, together with our big-box store format and the implementation of a number of safety measures within our stores in response to COVID-19 that helped facilitate our customers' ability to obtain the products they sought in a safe manner, contributed to the increase in comparable sales during this period.

E-commerce net sales increased $49.5 million, or 95.9%, in the 2020 third quarter compared to the prior year third quarter and represented 7.5% of merchandise sales for the 2020 third quarter compared to 4.5% in the prior year.

This increase was driven by a change in consumer shopping preferences resulting from the COVID-19 pandemic.

Additionally, enhancements to our e-commerce platform, including the introduction of buy-online-pickup-in-store ("BOPIS") at the end of the 2019 second quarter and rapid development of curbside fulfillment to further support BOPIS in the 2020 first quarter contributed to the increase in e-commerce sales.

Net sales increased $444.0 million, or 39.1%, in the 2021 first quarter compared to the 2020 first quarter as a result of increased comparable sales of 38.9% and strong sales performances across all of our merchandise divisions.

During the 2021 first quarter, we experienced a more balanced product sales mix across merchandise divisions relative to the prior year quarter.

Our increase in comparable sales was led by strong performances in apparel and footwear resulting from increased overall customer spending and a decline in prior year sales within these categories.

During prior year quarter, we began to see the effects of the COVID-19 pandemic drive an increase in popularity of isolated recreation, outdoor and leisure activities resulting in better performances in the outdoors and sports and recreation merchandise divisions, which was partially offset by performance declines in the footwear and apparel divisions.

The 2021 first quarter comparable sales increase of 38.9% was driven by increased sales across all merchandise divisions and almost every product category.

The apparel division increase was led by athletic and outdoor and seasonal products.

The footwear division increased due to strong sales across the division especially in work, casual and youth and athletic.

The sports and recreation merchandise division comparable sales increase was driven by strong sales in recreation and team sports.

The outdoor merchandise division increase was led by the camping and fishing categories and partially offset by a decrease in firearms sales.

E-commerce net sales decreased $30.9 million, or 21.0%, in the 2021 first quarter compared to the 2020 first quarter and represented 7.4% of merchandise sales in the 2021 first quarter compared to 13.1% in the 2020 first quarter.

We believe the decline in e-commerce was generated by a demand shift from e-commerce to in-store sales caused by the easing of COVID-19 restrictions, as well as a greater comfort level amongst our customers for visiting our stores in person.

During the 2021 first quarter, we encountered challenges from a winter storm, which occurred from February 14, 2021 through February 20, 2021, resulting in the temporary closure of up to 125 stores, two of our distribution centers and our e-commerce platform.

Gross Margin.

Gross margin increased $78.1 million, or 21.5%, to $440.5 million in the 2020 third quarter from $362.4 million in the 2019 third quarter.

As a percentage of net sales, gross margin increased 1.1% from 31.6% in the 2019 third quarter to 32.7% in the 2020 third quarter.

Gross margin increased $265.8 million, or 89.2%, to $563.7 million in the 2021 first quarter from $297.9 million in the 2020 first quarter.

As a percentage of net sales, gross margin increased 9.5% from 26.2% in the 2020 first quarter to 35.7% in the 2021 first quarter.

The increase of 950 basis points in gross margin is primarily attributable to:

• 106 basis points of favorability in merchandise margins from less clearance activity and lower markdowns.

• 777 basis points of favorability in merchandise margins due to a shift in higher margin goods driving the increased sales, higher average unit retails, and less clearance and promotional activity from the prior year;

• 173 basis points of favorability in inventory overhead expenditures as a result of lower expense absorption rates from higher inventory turnover rates;

partially offset by

• 100 basis points of unfavorability related to import freight as a result of increased rates.

Selling, General and Administrative Expenses.

SG&A expenses increased $49.7 million to $359.0 million in the 2020 third quarter as compared to $309.2 million in the 2019 third quarter.

As a percentage of net sales, SG&A expenses were down 0.4% to 26.6% in the 2020 third quarter compared to 27.0% in the 2019 third quarter.

SG&A expenses increased $40.7 million, or 14.3%, to $324.6 million in the 2021 first quarter from $283.9 million in the 2020 first quarter.

As a percentage of net sales, SG&A expenses were down 4.5% to 20.5% in the 2021 first quarter compared to 25.0% in the 2020 first quarter.

The decrease of 450 basis points in SG&A is primarily attributable to:

• 259 basis point decrease in property and facility fees as a result of leveraging costs on increased sales;

• 58 basis point decrease in advertising as a result of favorable leveraging of costs on increased sales and reduced marketing and promotional activities;

partially offset by

• 94 basis point increase in employee costs, primarily driven by increased incentive compensation expense and incremental expenses resulting from the expensing of certain share-based awards in connection with the completion of the IPO;

• 87 basis point increase in professional fees driven by the expensing of fees related to the termination of our monitoring agreement which occurred upon completion of the IPO.

• 168 basis point decrease in employee costs driven by increased sales that more than offset the increased costs from prior year furloughs, wage reductions and other strategic initiatives;

• various other declines as a result of leveraging SG&A costs on increased sales.

Interest Expense.

Interest expense decreased $2.2 million, or 8.9%, in the 2020 third quarter when compared with the 2019 third quarter, primarily as a result of lower interest rates and a reduction in outstanding principal balance on our term loan from current year principal repurchases.

Other (Income) Expense, net.

Other (income) expense, net decreased $1.2 million in the 2020 third quarter when compared with the 2019 third quarter caused by a portion of the underlying cash flows related to $100.0 million of swap notional principal amount which were no longer probable of occurring and resulted in the immediate recognition of $1.3 million of expense.

Income Tax Expense (Benefit).

Income tax expense decreased $1.7 million to an income tax benefit of $1.2 million in the 2020 third quarter as compared to an income tax expense of $0.5 million in the 2019 third quarter.

As a result of the Reorganization Transactions, which occurred on October 1, 2020, ASO, Inc.

became subject to U.S.

federal income taxes and is being taxed at the prevailing corporate rates.

For periods subsequent to the Reorganization Transactions, we incurred a pre-tax loss as a result of incremental equity compensation expense in connection with the IPO and the termination of the Monitoring Agreement, which resulted in a net tax benefit for the thirteen weeks ended October 31, 2020.

Thirty-Nine Weeks Ended October 31, 2020 Compared to Thirty-Nine Weeks Ended November 2, 2019

The following table sets forth amounts and information derived from our unaudited statements of income for the periods indicated as follows (dollar amounts in thousands):

Thirty-Nine Weeks Ended Change

October 31, 2020 November 2, 2019 Dollars Percent

Net sales $ 4,091,797 100.0 % $ 3,459,405 100.0 % $ 632,392 18.3 %

Cost of goods sold 2,856,840 69.8 % 2,398,783 69.3 % 458,057 19.1 %

Gross margin 1,234,957 30.2 % 1,060,622 30.7 % 174,335 16.4 %

Selling, general and administrative expenses 955,591 23.4 % 923,418 26.7 % 32,173 3.5 %

Operating income 279,366 6.8 % 137,204 4.0 % 142,162 103.6 %

Interest expense, net 70,487 1.7 % 77,171 2.2 % (6,684) (8.7) %

Gain on early retirement of debt, net (7,831) (0.2) % (42,265) (1.2) % 34,434 (81.5) %

Interest expense decreased $10.0 million, or 40.7%, in the 2021 first quarter when compared to the 2020 first quarter, primarily as a result of a lower outstanding principal balance on the Term Loan (as defined below) in the current year compared to the prior year due to debt refinancing activities which occurred in the 2020 fourth quarter as well as lower interest on the ABL Facility from our 2020 first quarter $500.0 million draw-down as a precautionary measure at the beginning of the COVID-19 pandemic.

Other (Income), net.

Income before income taxes 217,567 5.3 % 104,219 3.0 % 113,348 108.8 %

Income tax expense 325 0.0 % 1,914 0.1 % (1,589) (83.0) %

Net income $ 217,242 5.3 % $ 102,305 3.0 % $ 114,937 112.3 %

*Percentages in table may not sum properly due to rounding.

Net sales increased $632.4 million, or 18.3%, for the year-to-date 2020 compared to the year-to-date 2019 as a result of increased comparable sales of 16.1% and additional net sales generated by new locations.

As of the end of the 2020 third quarter, we had a full benefit of a net six stores opened during the prior year-to-date.

Collectively, these stores accounted for a net $73.6 million increase in net sales for the year-to-date 2020.

The 16.1% increase in comparable sales resulted from strong performances in the outdoors merchandise division and the sports and recreation merchandise division, partially offset by declines the apparel and footwear merchandise divisions, respectively.

The effects of the COVID-19 pandemic during the year-to-date 2020 have caused significant increases in popularity of isolated recreation, outdoor and leisure activities that we believe have driven the increases in our outdoors and sports and recreation merchandise divisions.

Likewise, we believe the decreases in our apparel and footwear merchandise divisions were predominately driven by a temporary but significant shift in customer behavior at the substantial beginning of the COVID-19 pandemic, which saw customers purchasing primarily isolated recreation, outdoor and leisure activity products in addition to "essential items." The outdoors division increase was driven primarily by strong sales in firearms, ammunition, fishing, hunting and shooting sports products.

The sports and recreation division sales increased as a result of various products such as fitness equipment and accessories, bikes, barbecues and grills, patio and watersports, trampolines, outdoor games and play sets.

These increases were partially offset by declining sales in the team sports category.

The apparel division decreased as a result of declines in licensed apparel resulting from the Astros World Series appearance in the prior year, outdoor apparel and seasonal apparel products, partially offset by increases in the athletic apparel products.

The footwear division sales decreased due to declines in the team sports category and the work, casual and youth category, which were partially offset by an increase in athletic footwear.

We believe that the substantial increase to e-commerce sales described below and the ongoing improvements to our business, such as enhancements to our merchandising planning and allocation capabilities that began in February 2019 and the launch of the Academy Credit Card in May 2019, together with our big-box store format and the implementation of a number of safety measures within our stores in response to the COVID-19 pandemic that helped facilitate our customers' ability to obtain the products they sought in a safe manner, contributed to the increase in comparable sales this year-to-date.

E-commerce net sales increased $270.1 million, or 208.6%, for the current year-to-date compared to the prior year-to-date and represented 9.8% of merchandise sales for the current year-to-date compared to 3.8% in the prior year-to-date.

This increase was driven by a change in consumer shopping preferences and sales restrictions resulting from the COVID-19 pandemic.

Additionally, enhancements to our e-commerce platform, including the introduction of BOPIS at the end of the 2019 second quarter and rapid development of curbside fulfillment to further support BOPIS in the year-to-date 2020 contributed to the increase in e-commerce sales.

Gross Margin.

Gross margin increased $174.3 million, or 16.4%, to $1,235.0 million for the year-to-date 2020 from $1,060.6 million for the year-to-date 2019.

As a percentage of net sales, gross margin decreased 0.5% from 30.7% for the year-to-date 2019 to 30.2% in the year-to-date 2020.

The decrease of 50 basis points in gross margin is primarily attributable to:

• 43 basis points of unfavorability related to import freight as a result of increased duties on products sold;

• 37 basis points of unfavorability as a result of decreased vendor allowances, including new store allowances;

partially offset by

• 30 basis points of favorability related to inventory overhead expenditures as a result of less expenses capitalized during the first half of 2020, which are primarily wage related, due to temporary workforce furloughs and wage cuts during the first half of 2020.

Selling, General and Administrative Expenses.

SG&A expenses increased $32.2 million, or 3.5%, to $955.6 million in the year-to-date 2020 from $923.4 million in the year-to-date 2019.

As a percentage of net sales, SG&A expenses were down 3.3% to 23.4% in the year-to-date 2020 compared to 26.7% in the year-to-date 2019.

The decrease of 330 basis points in SG&A is primarily attributable to:

• 171 basis point decrease in property and facility fees as a result of leveraging costs on increased sales and decreased depreciation costs;

• 96 basis point decrease in advertising due to favorable leveraging of costs on increased sales and reduced marketing and promotional activities;

• 78 basis point decrease in employee costs from leveraging costs on increased sales, partially offset by increased incentive compensation expense and incremental expenses resulting from the expensing of certain share-based awards in connection with the completion of the IPO.

Gain on early retirement of debt, net.

Gain on early retirement of debt, net decreased $34.4 million, or 81.5%, to $7.8 million from $42.3 million in the prior year-to-date.

During the year-to-date 2020, we repurchased $23.9 million in principal on the 2015 Term Loan Facility, which was trading at a discount, in open market transactions for $16.0 million and recognized a net gain of $7.8 million.

During the year-to-date 2019, we repurchased $147.7 million in principal on the 2015 Term Loan Facility, which was trading at a discount in open market transactions for $104.6 million and recognized a net gain of $42.3 million.

Interest Expense.

Interest expense decreased $6.7 million, or 8.7%, in the year-to-date 2020 when compared to the year-to-date 2019, primarily as a result of a lower outstanding principal balance and interest rates on our term loan from prior year and current year principal repurchases of $147.7 million and $23.9 million, respectively, partially offset by higher interest on our ABL facility due to a higher average outstanding balance.

Other (Income) Expense, net.

Other income decreased $1.1 million in the year-to-date 2020 when compared to the year-to-date 2019 caused by a portion of the underlying cash flows related to $100.0 million of swap notional principal amount which were no longer probable of occurring and resulted in the immediate recognition of $1.3 million of expense.

Other income decreased $0.6 million due to lower earned interest on money market funds from lower balances and lower interest rates during the 2021 first quarter relative to the 2020 first quarter.

The higher prior year investments in money market accounts were driven by the precautionary draw-down of $500.0 million on our ABL Facility at the beginning of the COVID-19 pandemic.

Income Tax Expense.

Income tax expense decreased $1.6 million to $0.3 million in the year-to-date 2020 as compared to $1.9 million in the year-to-date 2019.

Income tax expense increased $46.6 million to $47.1 million in the 2021 first quarter as compared to $0.5 million in 2020 first quarter.

As a result of the Reorganization Transactions, which occurred on October 1, 2020, ASO, Inc.

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federal income taxes and is being taxed at the prevailing corporate rates.

The increase in our federal income tax effective rate upon completion of the Reorganization Transactions was largely offset by a net tax benefit for the third quarter of 2020, which resulted from a pre-tax loss subsequent to the Reorganization Transactions caused by incremental costs, including equity compensation expense, in connection with the IPO and the termination of the Monitoring Agreement.

ASO, Inc.’s effective tax rate for the 2021 first quarter was 20.9%.

The effective tax rate was reduced by approximately 2.9% for the benefit of tax deductions related to the vesting or exercise of several equity compensation awards during the period.

Non-GAAP Measures

We define Adjusted EBITDA as net income (loss) before interest expense, net, income tax expense and depreciation, amortization and impairment, further adjusted to exclude consulting fees, Adviser monitoring fees, stock based compensation expense, gain on early extinguishment of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic, inventory write-down adjustments associated with strategic merchandising initiative and other adjustments.

We describe these adjustments reconciling net income (loss) to Adjusted EBITDA in the applicable table below.

We define Adjusted Net Income as net income (loss), plus consulting fees, Adviser monitoring fees, stock based compensation expense, gain on early extinguishment of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic, inventory write-down adjustments associated with strategic merchandising initiative and other adjustments, less the tax effect of these adjustments.

Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow, as shown below, have been presented in this Quarterly Report as supplemental measures of financial performance that are not required by, or presented in accordance with, accounting principles generally accepted in the United States of America ("GAAP").

We define Adjusted EBITDA as net income (loss) before interest expense, net, income tax expense and depreciation, amortization and impairment, further adjusted to exclude consulting fees, private equity sponsor monitoring fees, equity compensation expense, gain on early extinguishment of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic and other adjustments.

We define Adjusted EBIT as net income (loss) before interest expense, net, and income tax expense, further adjusted to exclude consulting fees, private equity sponsor monitoring fees, equity compensation expense, gain on early extinguishment of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic and other adjustments.

We describe these adjustments reconciling net income (loss) to Adjusted EBITDA and to Adjusted EBIT in the applicable table below.

We define Adjusted Net Income as net income (loss), plus consulting fees, private equity sponsor monitoring fees, equity compensation expense, gain on early extinguishment of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic and other adjustments, less the tax effect of these adjustments.

We define Pro Forma Adjusted Net Income as Adjusted Net Income less the retrospective tax effect of Adjusted Net Income at our estimated effective tax rate of approximately 25% for periods prior to October 1, 2020, the effective date of our conversion to a C-Corporation.

We define basic Pro Forma Adjusted Earnings per Share as Pro Forma Adjusted Net Income divided by the basic weighted average common shares outstanding during the period and diluted Pro Forma Adjusted Earnings per Share as Pro Forma Adjusted Net Income divided by the diluted weighted average common shares outstanding during the period.

We define these adjustments reconciling net income (loss) to Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share in the applicable table below.

We define Adjusted Free Cash Flow as net cash provided by (used in) operating activities less net cash used in investing activities.

We describe these adjustments by reconciling net cash provided by operating activities to Adjusted Free Cash Flow in the applicable table below.

Adjusted EBITDA, Adjusted Net Income, Pro-Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow, as shown below, have been presented in this Quarterly Report as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP.

We believe Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

Management believes Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments.

We describe these adjustments reconciling net income (loss) to Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share in the applicable table below.

We describe Adjusted Free Cash Flow as net cash provided by (used in) operating activities less net cash used in investing activities.

We describe this adjustment by reconciling net cash provided by operating activities to Adjusted Free Cash Flow in the applicable table below.

We believe Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

Management believes Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments.

Management believes Adjusted Free Cash Flow is a useful measure of liquidity and an additional basis for assessing our ability to generate cash.

Management uses Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures.

Management uses Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures.

Management also uses Adjusted EBIT as a performance target to establish and award discretionary annual incentive compensation.

Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone.

Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow are not recognized terms under GAAP and should not be considered as an alternative to net income (loss) as a measure of financial performance or net cash provided by operating activities as a measure of liquidity, or any other performance measures derived in accordance with GAAP.

Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow are not recognized terms under GAAP and should not be considered as an alternative to net income (loss) as a measure of financial performance or net cash provided by operating activities as a measure of liquidity, or any other performance measures derived in accordance with GAAP.

Additionally, these measures are not intended to be a measure of free cash flow available for management’s discretionary use as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements.

Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share should not be construed to imply that our future results will be unaffected by unusual or non-recurring items.

In evaluating Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation.

Our presentation of Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow should not be construed to imply that our future results will be unaffected by any such adjustments.

Management compensates for these limitations by primarily relying on our GAAP results in addition to using Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow supplementally.

Our Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow measures have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP.

Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share should not be construed to imply that our future results will be unaffected by unusual or non-recurring items.

In evaluating Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation.

Our presentation of Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow should not be construed to imply that our future results will be unaffected by any such adjustments.

Our Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow measures have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP.

Some of these limitations are:

• Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect costs or cash outlays for capital expenditures or contractual commitments;

• Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect changes in, or cash requirements for, our working capital needs;

• Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, and Adjusted Free Cash Flow does not reflect the cash requirements necessary to service principal payments on our debt;

• Adjusted EBITDA does not reflect period to period changes in taxes, income tax expense or the cash necessary to pay income taxes;

• Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;

• Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect costs or cash outlays for capital expenditures or contractual commitments;

• Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect changes in, or cash requirements for, our working capital needs;

• Adjusted EBITDA and Adjusted EBIT do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, and Adjusted Free Cash Flow does not reflect the cash requirements necessary to service principal payments on our debt;

• Adjusted EBITDA and Adjusted EBIT do not reflect period to period changes in taxes, income tax expense or the cash necessary to pay income taxes;

• Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA and Adjusted Free Cash Flow do not reflect cash requirements for such replacements;

• other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.

Because of these limitations, Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow should not be considered as measures of discretionary cash available to invest in business growth or to reduce indebtedness.

Adjusted EBITDA

The following table provides reconciliations of net income (loss) to Adjusted EBITDA for the periods presented (amounts in thousands):

Thirteen Weeks Ended Thirty-Nine Weeks Ended

October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Net income $ 59,586 $ 28,552 $ 217,242 $ 102,305

Because of these limitations, Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow should not be considered as measures of discretionary cash available to invest in business growth or to reduce indebtedness.

Management compensates for these limitations by primarily relying on our GAAP results in addition to using Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow supplementally.

Adjusted EBITDA and Adjusted EBIT

The following table provides reconciliations of net income (loss) to Adjusted EBITDA and to Adjusted EBIT for the periods presented (amounts in thousands):

Thirteen Weeks Ended

May 1, 2021 May 2, 2020

Net income (loss) $ 177,796 $ (10,020)

Interest expense, net 14,549 24,522

Income tax expense 47,126 513

Depreciation, amortization and impairment 25,567 29,596 79,718 88,693

Depreciation and amortization 25,298 27,447

Consulting fees (a) — 56

Adviser monitoring fee (b) 12,953 937 14,793 2,697

Private equity sponsor monitoring fee (b) — 920

Equity compensation (c) 5,874 2,109

Gain on early extinguishment of debt, net — — (7,831) (42,265)

Severance and executive transition costs (d) — 228

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Adjusted EBITDA $ 270,993 $ 53,257

Depreciation and amortization (25,298) (27,447)

Adjusted EBIT $ 245,695 $ 25,810

(a) Represents outside consulting fees associated with our strategic cost savings and business optimization initiatives.

3 unchanged sentences

(d) Represents severance costs associated with executive leadership changes and enterprise-wide organizational changes.

(e) Represents costs incurred as a result of the COVID-19 pandemic, including temporary wage premiums, additional sick time, costs of additional cleaning supplies and third party cleaning services for the stores, corporate office and distribution centers, accelerated freight costs associated with shifting our inventory purchase earlier in the year to maintain stock, and legal fees associated with consulting in local jurisdictions.

(f) Other adjustments include (representing deductions or additions to Adjusted EBITDA) amounts that management believes are not representative of our operating performance, including investment income, installation costs for energy savings associated with our profitability initiatives, legal fees associated with a distribution to NAHC's members and our omnibus incentive plan, store exit costs and other costs associated with strategic cost savings and business optimization initiatives.

(e) Represents costs incurred during the 2020 first quarter as a result of the COVID-19 pandemic, including temporary wage premiums, additional sick time, costs of additional cleaning supplies and third party cleaning services for the stores, corporate office and distribution centers, accelerated freight costs associated with shifting our inventory purchase earlier in the year to maintain stock, and legal fees associated with consulting in local jurisdictions.

These costs were no longer added back beginning in the third quarter of 2020.

(f) Other adjustments include (representing deductions or additions to Adjusted EBITDA and Adjusted EBIT) amounts that management believes are not representative of our operating performance, including investment income, installation costs for energy savings associated with our profitability initiatives, legal fees associated with a distribution to NAHC's members and our omnibus incentive plan, store exit costs and other costs associated with strategic cost savings and business optimization initiatives.

Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share

The following table provides a reconciliation of net income to Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share for the periods presented (amounts in thousands, except per share data):

Thirteen Weeks Ended Thirty-Nine Weeks Ended

October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Net income $ 59,586 $ 28,552 $ 217,242 $ 102,305

Thirteen Weeks Ended

May 1, 2021 May 2, 2020

Net income (loss) $ 177,796 $ (10,020)

Consulting fees (a) — 56

Adviser monitoring fee (b) 12,953 937 14,793 2,697

Private equity sponsor monitoring fee (b) — 920

Equity compensation (c) 5,874 2,109

Gain on early extinguishment of debt, net — — (7,831) (42,265)

Severance and executive transition costs (d) — 228

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(d) Represents severance costs associated with executive leadership changes and enterprise-wide organizational changes.

These costs were no longer added back beginning in the third quarter of 2020.

(f) Other adjustments include (representing deductions or additions to Adjusted Net Income) amounts that management believes are not representative of our operating performance, including investment income, installation costs for energy savings associated with our profitability initiatives, legal fees associated with a distribution to NAHC's members and our omnibus incentive plan, store exit costs and other costs associated with strategic cost savings and business optimization initiatives.

(g) Represents the tax effect of the total adjustments made to arrive at Adjusted Net Income at our historical tax rate.

(g) For the thirteen weeks ended May 1, 2021, this represents the tax effect of the total adjustments made to arrive at Adjusted Net Income at the estimated effective tax rate for the fiscal year ended January 31, 2022.

For the thirteen weeks ended May 2, 2020, this represents the tax effect of the total adjustments made to arrive at Adjusted Net Income at our historical tax rate.

(h) Represents the retrospective tax effect of Adjusted Net Income at our estimated effective tax rate of approximately 25% for periods prior to October 1, 2020, the effective date of our conversion to a C-Corporation, upon which we became subject to federal income taxes.

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The following table provides a reconciliation of net cash provided by operating activities to Adjusted Free Cash Flow for the periods presented (amounts in thousands):

Thirteen Weeks Ended Thirty-Nine Weeks Ended

October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Net cash provided by (used in) operating activities $ 83,597 $ (9,205) $ 857,218 $ 94,756

Net cash provided by (used in) investing activities 60 (20,812) (13,790) (52,579)

Thirteen Weeks Ended

May 1, 2021 May 2, 2020

Net cash provided by operating activities $ 219,228 $ 90,756

Net cash used in investing activities (16,808) (9,926)

Adjusted Free Cash Flow $ 202,420 $ 80,830

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• cash generated from operating activities;

• issuances of debt securities;

• borrowings under term loan and ABL credit facilities.

• issuances of the Notes / debt securities;

• borrowings under our Term Loan and ABL Facility.

Our historical uses of cash have been associated primarily with:

• operating activities such as the purchase and growth of inventory, expansion of our sales and marketing activities and other working capital needs;

• capital improvements and support of expansion plans, as well as various investments in store remodeling, store fixtures and on-going infrastructure improvements;

• paying debt obligations and related interest expense;

• paying partnership distributions to our members;

• cash used for operating activities such as the purchase and growth of inventory, expansion of our sales and marketing activities and other working capital needs;

• cash used for capital improvements and support of expansion plans, as well as various investments in store renovations, store fixtures and on-going infrastructure improvements;

• cash used to pay our debt obligations and related interest expense;

• cash used to pay partnership distributions to our members;

• fluctuations in working capital due to timing differences of cash receipts and cash disbursements.

On October 31, 2020, our cash and cash equivalents totaled $869.7 million.

We are focused on navigating the recent challenges presented by COVID-19 through the preservation of our long-term liquidity and management of cash flow through preemptive actions to enhance our ability to meet our short-term liquidity needs.

During the year-to-date 2020, we have taken various cost cutting measures to maximize operational cash flows (see "Impact of COVID-19 on Our Business" in the MD&A).

Such actions include, but are not limited to, reduction of discretionary spending, deferring or cancelling our planned expenses, revisiting and reprioritizing our strategic investments, and reducing our payroll costs, including temporary team member furloughs, workforce reductions and pay cuts.

On May 1, 2021, our cash and cash equivalents totaled $593.3 million.

During 2020, we focused on navigating the challenges presented by COVID-19 through the preservation of our long-term liquidity and management of cash flow through preemptive actions to enhance our ability to meet our short-term liquidity needs.

We took various cost cutting measures to maximize operational cash flows (see "Impact of COVID-19 on Our Business" in the MD&A).

Such actions included, but are not limited to, reduction of discretionary spending, deferring or cancelling our planned expenses, revisiting and reprioritizing our strategic investments, and reducing our payroll costs, including temporary team member furloughs, workforce reductions and pay cuts.

On August 28, 2020, we paid a $257.0 million one-time special distribution to our members of record as of August 25, 2020, $248.0 million of which was paid with cash on hand and the remainder of which was distributed through an offset of outstanding loans receivable from a member as well as state income tax withholdings made on behalf of NAHC's members.

Related cash payments of $20.7 million to vested share-based award holders was paid through October 31, 2020 and an additional $12.1 million of payments will be made to unvested share-based award holders as the related awards vest (see "Distribution" in Note 10 to the financial statements included in this Quarterly Report).

On October 6, 2020, we completed our IPO in which we issued and sold 15,625,000 shares of common stock, $0.01 par value, to the IPO underwriters for cash consideration of $12.22 per share (representing an initial public offering price of $13.00 per share, net of underwriting discounts) that resulted in net proceeds of approximately $184.9 million after deducting underwriting discounts, which included approximately $2.7 million paid to KKR Capital Markets LLC ("KCM"), an affiliate of KKR, for underwriting services in connection with the IPO, and $6.1 million in costs directly associated with the IPO, such as legal and accounting fees (see "Initial Public Offering and Reorganization Transactions" in Note 1 to the financial statements

included in this Quarterly Report).

Related cash payments of $24.0 million to vested share-based award holders was paid through May 1, 2021 and an additional $8.2 million of payments will be made to unvested share-based award holders as the related awards vest (see "Distribution" in Note 9 and "May Secondary Offering and Stock Repurchase" in Note 14 to the financial statements included in this Quarterly Report).

On October 6, 2020, we completed our IPO in which we issued and sold 15,625,000 shares of common stock, $0.01 par value, to the IPO underwriters for cash consideration of $12.22 per share (representing an initial public offering price of $13.00 per share, net of underwriting discounts) that resulted in net proceeds of approximately $184.9 million after deducting underwriting discounts, which included approximately $2.7 million paid to KKR Capital Markets LLC ("KCM"), an affiliate of KKR, for underwriting services in connection with the IPO, and $6.1 million in costs directly associated with the IPO, such as legal and accounting fees (see "Initial Public Offering, IPO Over-Allotment Exercise and Reorganization Transactions" in Note 1 to the financial statements included in this Quarterly Report).

The shares sold in the offering were registered under the Securities Act of 1933, as amended, pursuant to our registration statement on Form S-1 (File No.

333-248683, which was declared effective by the Securities and Exchange Commission on October 1, 2020).

Subsequent to the third quarter, on November 3, 2020, the Company issued and sold an additional 1,807,495 shares of the Company’s common stock, par value $0.01 per share, for cash consideration of $12.22 per share (representing an initial public offering price of $13.00 per share, net of underwriting discounts) to the IPO underwriters, resulting in approximately $22.1 million in proceeds net of underwriting discounts (see "Initial Public Offering and Reorganization Transactions" in Note 1 to the financial statements included in this Quarterly Report), which included $0.3 million paid to KCM, for underwriting services, pursuant to the partial exercise by the underwriters of their option to purchase up to 2,343,750 additional shares to cover over-allotments in connection with our IPO.

The option has expired with respect to the remaining shares (see Note 15 to the financial statements included in this Quarterly Report).

Subsequent to the third quarter, on November 6, 2020, the Company (1) issued $400.0 million of 6.00% senior secured notes (the "2020 Notes"), which are due November 15, 2027, (2) entered into a $400.0 million first lien term loan facility (the "2020 Term Loan Facility"), which is due November 6, 2027 and (3) extended the maturity of Academy, Ltd.’s asset-based revolving credit facility thereunder to November 6, 2025 (as extended, the "2020 ABL Facility") (see Note 15 to the financial statements included in this Quarterly Report).

We used the net proceeds from the 2020 Notes and the net proceeds from the 2020 Term Loan Facility, together with cash on hand, to repay in full our existing term loan, in the amount of $1,431.4 million (see Note 15 to the financial statements included in this Quarterly Report).

On November 3, 2020, the Company issued and sold an additional 1,807,495 shares of the Company’s common stock, par value $0.01 per share, for cash consideration of $12.22 per share (representing an initial public offering price of $13.00 per share, net of underwriting discounts) to the IPO underwriters, resulting in approximately $22.1 million in proceeds net of underwriting discounts (see "Initial Public Offering, Over-Allotment Exercise and Reorganization Transactions" in Note 1 to the financial statements included in this Quarterly Report), which included $0.3 million paid to KCM, for underwriting services, pursuant to the partial exercise by the underwriters of their option to purchase up to 2,343,750 additional shares to cover over-allotments in connection with our IPO.

The option has expired with respect to the remaining shares.

On November 6, 2020, the Company (1) issued $400.0 million of 6.00% senior secured notes (the "Notes"), which are due November 15, 2027, (2) entered into a $400.0 million first lien term loan facility (the "2020 Term Loan " and, together with the 2015 Term Loan (as defined in the notes to the financial statements included in this Annual Report), the "Term Loan"), which is due November 6, 2027 and (3) extended the maturity of Academy, Ltd.’s asset-based revolving credit facility thereunder to November 6, 2025 (as extended, the "2020 ABL Facility" and, together with the 2015 ABL Facility (as defined in the notes to the financial statements included in this Annual Report), the "ABL Facility").

We used the net proceeds from the Notes and the net proceeds from the 2020 Term Loan, together with cash on hand, to repay in full the 2015 Term Loan, in the amount of $1,431.4 million (see Note 4 to the financial statements included in the Annual Report).

Subsequent to the 2021 first quarter and in connection with the May 2021 Secondary Offering (see "May 2021 Secondary Offering and Stock Repurchase" in Note 14 to the financial statements included in this Quarterly Report), on May 10, 2021, the Company completed a repurchase and simultaneous retirement of 3,229,974 shares from the underwriters for cash consideration of $30.96 per share, resulting in a payment of approximately $100.0 million to the underwriters.

The May 2021 Secondary Offering reduced KKR's ownership interest in the Company to 31.3% and resulted in a vesting event for awards granted under the 2011 Unit Incentive Plan, whereby unvested time awards, and performance-based awards which had previously met their performance targets, vested, and unvested performance-based awards which had not previously met their performance targets were forfeited.

As a result, we incurred approximately $24.9 million in non-cash expenses related to equity-based compensation and approximately $15.4 million of cash expenses related to taxes on equity-based compensation.

Additionally, approximately $8.2 million of cash payments for equity-based compensation distributions will be accelerated (see Note 14 to the financial statements included in this Quarterly Report).

Subsequent to the 2021 first quarter, on May 25, 2021, the Company entered into an Amendment No.

4 (the "Amendment") to the Second Amended and Restated Credit Agreement (as previously amended, the "Existing Credit Agreement") which (i) reduced the applicable margin on LIBOR borrowings under the Term Loan from 5.00% to 3.75% and (ii) utilized cash on hand to repay $99.0 million of outstanding borrowings under the Term Loan, leaving an outstanding principal balance of $300.0 million under the Amended Credit Agreement.

Borrowings under the Amended Credit Agreement will continue to mature on November 6, 2027, and all other material terms and provisions of the Existing Credit Agreement remain substantially the same as the terms and provisions in place immediately prior to the effectiveness of the Amendment (see Note 14 to the financial statements included in this Quarterly Report).

We expect to use existing cash balances, internally generated cash flows, and available borrowings under the ABL Facility to fund anticipated capital expenditures, working capital needs and scheduled debt service costs and maturities over at least the next twelve months.

The ABL Facility provides for these financing needs and other general corporate purposes, as well as to support certain letter of credit requirements.

We may continue to use the 2020 ABL Facility to repay debt under the 2020 Term Loan Facility.

We may continue to use the ABL Facility to repay debt under the Term Loan.

Availability under the ABL Facility is subject to customary asset-backed loan borrowing base and availability provisions.

Amounts outstanding under the ABL Facility may fluctuate materially during each quarter mainly due to cash flow from operations, normal changes in working capital, capital expenditures and debt service costs.

Our availability under the 2020 ABL Facility during the peak borrowing days of the year-to-date 2020 was ample to support our operations and service our requirements.

Liquidity information related to our ABL facility is as follows for the periods shown (dollar amounts in thousands):

Thirty-Nine Weeks Ended

October 31, 2020 November 2, 2019

Our availability under the ABL Facility was ample to support our operations and service our requirements.

To date in 2021, we have had no borrowings under the ABL Facility.

Liquidity information related to the ABL facility is as follows for the periods shown (dollar amounts in thousands):

Thirteen Weeks Ended

May 1, 2021 May 2, 2020

Average funds drawn $ — $ 232,967

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Minimum available borrowing capacity $ 780,945 $ 270,152

Liquidity information related to our ABL facility (amounts in thousands) as of:

October 31, 2020 February 1, 2020 November 2, 2019

Liquidity information related to the ABL facility (amounts in thousands) as of:

May 1, 2021 January 30, 2021 May 2, 2020

Outstanding borrowings $ — $ — $ 500,000

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Approximately 50% of our planned cash outflow relate to investments in our corporate, e-commerce and information technology programs.

Investments in existing stores and distribution centers is expected to account for approximately 30% of the planned cash outflow and the remaining 5% is expected to be utilized through investments in store remodels.

Investments in existing stores and distribution centers is expected to account for approximately 40% of the planned cash outflow and the remaining 10% is expected to be utilized through investments in new stores and relocations.

We review forecasted capital expenditures throughout the year and will adjust or modify projects based on business conditions at that time.

Cash Flows for the Thirty-Nine Weeks Ended October 31, 2020 and November 2, 2019

Cash Flows for the Thirteen Weeks Ended May 1, 2021 and May 2, 2020

Our unaudited statements of cash flows are summarized as follows (in thousands):

Thirty-Nine Weeks Ended

October 31, 2020 November 2, 2019

Thirteen Weeks Ended

May 1, 2021 May 2, 2020

Net cash provided by operating activities $ 219,228 $ 90,756

Net cash used in investing activities (16,808) (9,926)

Net cash used in financing activities (123,088) (74,330)

Net increase (decrease) in cash and cash equivalents $ 720,340 $ (32,153)

Net cash provided by financing activities 13,264 495,400

Net increase in cash and cash equivalents $ 215,684 $ 576,230

Operating Activities.

Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, non-cash lease expense, equity compensation, amortization of deferred loan and other costs, non-cash gain on early retirement of debt, net, and changes in assets and liabilities, loss on swaps from debt refinancing and deferred income taxes.

Cash flows from operating activities are seasonal in our business.

Typically, cash flows from operations are used to build inventory in advance of peak selling seasons, with the fourth quarter pre-holiday season inventory increase being the most significant.

Cash provided by operating activities in the year-to-date 2020 increased $762.5 million, compared to the year-to-date 2019.

Cash provided by operating activities in the 2021 first quarter increased $128.5 million, compared to the 2020 first quarter.

This increase in cash was attributable to:

• $599.1 million net increase in cash flows provided by operating assets and liabilities;

• $187.8 million increase in net income;

• $48.4 million increase in non-cash charges.

The increase in cash flows from operating assets and liabilities for the year-to-date 2020 compared to the year-to-date 2019 was primarily attributable to:

• $214.5 million decrease in merchandise inventories, net due to inventory reductions from high sell through in the current year-to-date, coupled with an increase in inventory during the prior year;

• $15.5 million net increase in non-cash charges;

partially offset by a

• $74.8 million net decrease in cash flows provided by operating assets and liabilities.

The increase from non-cash charges was primarily caused by:

• $25.1 million increase in deferred income taxes as a result of ASO, Inc.

becoming subject to U.S.

federal income taxes after the Reorganization Transactions in October 2020;

partially offset by a

• $12.4 million decrease in non-cash lease expense due to timing of May rent payments in the prior year.

The decrease in cash flows from operating assets and liabilities was primarily attributable to:

• $177.8 million increase in merchandise inventories, net related to an increase in inventory during the 2021 first quarter coupled with a prior year reduction of inventory;

partially offset by an

• $89.5 million increase in accounts payable related to increased inventory receipts in recent months and extensions of vendor payment terms;

The increase from non-cash charges for the year-to-date 2020 compared to the year-to-date 2019 was primarily caused by:

• $34.4 million decrease in non-cash gains on the early retirement of debt, net resulting from lower current year-to-date principal repurchases of portions of our 2015 Term Loan Facility;

• $21.2 million increase in stock compensation expense, which includes approximately $19.9 million of stock compensation associated with the expensing of certain outstanding restricted stock units as a result of the liquidity condition being achieved upon completion of our IPO;

• $12.4 million increase in non-cash lease expense due to timing of rent payments and 46 lease extensions executed during the year-to-date 2020;

partially offset by

• $11.5 million decrease related to increased deferred income tax accruals as a result of the Company becoming subject to federal income taxes in connection with the Reorganization Transactions;

• $9.0 million decrease in depreciation and amortization.

• $21.4 million increase in income taxes as a result of ASO, Inc.

becoming subject to U.S.

federal income taxes after the Reorganization Transactions in October 2020.

Investing Activities .

The following table details the amounts of capital expenditures for each period indicated (amounts in thousands):

Thirty-Nine Weeks Ended

October 31, 2020 November 2, 2019 Change

Capital expenditures $ 21,915 $ 48,614 $ (26,699)

Cash used in investing activities decreased $38.8 million in the current year-to-date compared to the same period last year.

The decrease in cash used in investing activities is primarily due to:

• $26.7 million less capital expenditures due to a planned overall reduction in the year-to-date 2020 led by a reduction in new stores and store remodeling;

• $12.1 million increase related to cash proceeds as a result of repayment of notes receivable from a one NAHC member during the year-to-date 2020 compared to cash outflow related to the issuance of a note receivable to one NAHC member in 2019.

Cash used in investing activities increased $6.9 million in the 2021 first quarter compared to the same period last year.

The increase in cash used in investing activities is primarily due to:

• $6.9 million higher capital expenditures on various digital projects as well as updates in the stores and distribution centers, coupled with the strategic reduction of capital expenditures in the prior year in response to the COVID-19 pandemic.

Financing Activities .

Cash used in financing activities increased $48.8 million in the year-to-date 2020, compared to the same period last year.

The primary drivers of the increase were:

• $277.7 million increase in cash outflow resulting from a distribution to NAHC's members and related share-based award payments which occurred in the year-to-date 2020;

• $44.3 million increase in cash outflow due to decreased net proceeds from the ABL facility;

partially offset by

• $184.9 million of net proceeds from the issuance of common stock during the third quarter of 2020, net of offering costs;

• $88.6 million decrease in cash outflows related to lower current year-to-date principal repurchases of portions of our term loan facility.

Cash provided by financing activities decreased $482.1 million in the 2021 first quarter, compared to the same period last year.

The primary drivers of the decrease were:

• $500.0 million decrease in cash inflow due to the precautionary draw-down of $500.0 million on the ABL Facility during the 2020 first quarter in response to the COVID-19 pandemic;

partially offset by a

• $17.3 million of net proceeds from the exercise of stock options in the current year.

Critical Accounting Policies and Estimates

This management's discussion and analysis of our financial condition and results of operations is based upon our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").

This management's discussion and analysis of our financial condition and results of operations is based upon our unaudited financial statements, which have been prepared in accordance with GAAP.

The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.

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Actual results could differ significantly from those estimates.

Management evaluated the development and selection or our critical accounting policies and estimates used in the preparation of the Company's unaudited financial statements and related notes and believes these policies to be reasonable and appropriate.

Management evaluated the development and selection of our critical accounting policies and estimates used in the preparation of the Company's unaudited financial statements and related notes and believes these policies to be reasonable and appropriate.

Certain of these policies involve a higher degree of judgment or complexity and are most significant to reporting our results of operations and financial position, and are, therefore, discussed as critical.

Our most significant estimates and assumptions that materially affect the financial statements involve difficult, subjective or complex judgments by management including the valuation of merchandise inventories, and performing goodwill, intangible and long-lived asset impairment analyses.

Given the global economic climate and additional unforeseen effects from the COVID-19 pandemic, these estimates are becoming more challenging, and actual results could differ materially from our estimates.

More information on all of our significant accounting policies can be found in Note 2, "Summary of Significant Critical Accounting Policies and Estimates" to our audited consolidated financial statements included in the Prospectus and the section of the Prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." There have been no material changes to our critical accounting policies as compared to the critical accounting policies described in the Prospectus.

Given the global economic climate and additional unforeseen effects from the COVID-19 pandemic, these estimates remain more challenging, and actual results could differ materially from our estimates.

More information on all of our significant accounting policies can be found in Note 2, "Summary of Significant Critical Accounting Policies and Estimates" to our audited consolidated financial statements included in the Annual Report and the section of the Annual Report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." There have been no material changes to our critical accounting policies as compared to the critical accounting policies described in the Annual Report.

Recent Accounting Pronouncements

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Off-Balance Sheet Arrangements

As of October 31, 2020, our off-balance sheet contractual obligations and commercial commitments relate to future minimum guaranteed contractual payments and letters of credit.

There have been no other material changes in our off-balance sheet arrangements as discussed in the section of the Prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" or our audited financial statements for the fiscal year ended February 1, 2020 included in the "Off-Balance Sheet Arrangements" section of the Prospectus.

As of May 1, 2021, our off-balance sheet contractual obligations and commercial commitments relate to future minimum guaranteed contractual payments and letters of credit.

There have been no other material changes in our off-balance sheet arrangements as discussed in the section of the Annual Report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" or our audited financial statements for the fiscal year ended January 30, 2021 included in the "Off-Balance Sheet Arrangements" section of the Annual Report.

Contractual Obligations and Commercial Commitments

Our contractual obligations and commercial commitments primarily relate to our debt facilities and senior secured notes, operating leases for stores, distribution centers, and office buildings, technology related commitments, the Monitoring Agreement, and sponsorship and intellectual property agreements.

Other than fluctuations from transactions in the ordinary course of business, there were no material changes during the quarter ended October 31, 2020 to the contractual obligations and commercial commitments disclosed in "Contractual Obligations and Commercial Commitments" in the section of the Prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations", other than the termination of the Monitoring Agreement as described in Note 13 to the financial statements included in this Quarterly Report.

Our contractual obligations and commercial commitments primarily relate to our debt facilities and senior secured notes, operating leases for stores, distribution centers, and office buildings, technology related commitments, and sponsorship and intellectual property agreements.

Other than than the item noted below and fluctuations from transactions in the ordinary course of business, there were no material changes during the quarter ended May 1, 2021 to the contractual obligations and commercial commitments disclosed in "Contractual Obligations and Commercial Commitments" in the section of the Annual Report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations".

On May 25, 2021, the Company refinanced its 2020 Term Loan and paid down approximately $99.0 million of the Term Loan (see Note 14 to the financial statements included in this Quarterly Report).

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our primary risk exposures or management of market risks from those disclosed in the Annual Report under "Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures About Market Risk."

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What changed 10-Q

Item 2. Management’s Discussion and Analysis